Regional Banking ETF Put Volume Pops During Afternoon Trading
by Andrew Wilkinson - December 17th, 2010 4:20 pm
Today’s tickers: KRE, CPN, PRGO, FITB, DPS, SMH & M
KRE - SPDR KBW Regional Banking ETF – A large-volume debit put spread initiated on the SPDR KBW Regional Banking ETF this afternoon suggests one options investor is wary that the significant run up in the price of the underlying fund since the start of December could reverse course next year. Shares of the KRE, an exchange-traded fund that tracks the performance of the KBW Regional Banking Index, are up slightly by 0.10% to trade at $25.18 as of 3:30pm. The strategist responsible for the put spread may be building up downside protection, or alternatively, could be taking an outright bearish stance on the regional banking sector through March 2011. Shares in the fund rallied 14.25% during December so far to reach a 6-month high of $25.59 this past Wednesday. The put-spreader picked up 19,000 put options at the March 2011 $24 strike for a premium of $0.81 each, and sold the same number of puts at the lower March 2011 $20 strike at a premium of $0.16 apiece. Net premium paid to initiate the spread amounts to $0.65 per contract. Thus, the investor is prepared to make money, or realize downside protection, if shares of the KRE fall 7.3% from the current price of $25.18 to breach the effective breakeven point on the spread at $23.35 by March 2011 expiration. Maximum potential profits of $3.35 per contract are available to the put-spreader should shares of the underlying fund plummet 20.6% lower to trade below $20.00 by expiration day next year. The fund’s shares have not traded below $20.00 in more than a year.
CPN - Calpine Corp. – A large chunk of call options were picked up on Calpine Corp. late in session by a bullish strategist positioning for shares to rally substantially ahead of January 2011 expiration. Shares of the independent power generation company are up 2.6% this afternoon to stand at $13.22 in the final hour of the trading week. Calpine was recently…
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Capital One Bears Out in Full Force in Options Land
by Andrew Wilkinson - January 22nd, 2010 4:29 pm
Today’s tickers: COF, CAT, XRT, XLY, XLB, XLF, KRE, BRK.B, MCD & ISRG
COF – Capital One Financial Corp. – Better-than-expected fourth-quarter earnings of $0.83 per share, which blew straight past average analyst estimates of $0.45 a share, failed to shield the stock from the massive beating received during the trading session. Shares plummeted 11% to an intraday low of $38.18 after analysts at FBR Capital Markets slashed their forecast for COF’s earnings. FBR analysts cited “shrinking margins and new U.S. credit-card regulations” as reasons for the reducing earnings estimates according to one Bloomberg article released this morning. Bearish option traders are out in full force, populating both the call and put sides of the stock with pessimistic transactions. Investors purchased put options as low as the February $35 strike where 1,200 contracts were picked up for an average premium of $0.57 apiece. Traders long the puts are perhaps bracing for an additional 9.80% shift down in the price of the underlying to the breakeven point on the puts at $34.43 by expiration next month. Approximately 2,000 nearly in-the-money puts were purchased at the higher February $38 strike price at an average premium of $1.46 apiece. Call selling added to the bearish picture as some 2,100 contracts were shed at the out-of-the-money February $40 strike for a premium of $1.43 per contract. Finally, one trader initiated a pessimistic stance in the January 2012 contract. Perhaps this investor believes today’s turmoil is just the beginning of Capital One’s troubles, or, alternatively, the trader may simply be looking to keep the dollar credit on the following transaction. The trader purchased 1,500 puts at the January 2012 $30 strike for a premium of $4.36 each, spread against the sale of 3,000 puts at the lower January 2012 $25 strike for which he received $2.68 apiece. The investor pockets a net credit of $1.00 per contract on the spread, which he keeps if shares settle above $30.00 by expiration.
CAT – Caterpillar, Inc. – Surprisingly bullish trades befell machinery maker Caterpillar today. CAT’s shares commenced the trading day with higher shares, but slipped lower during the session, and currently reside 1.35% lower on the day at $56.09. Investors expecting shares to recover by expiration in March shed 5,000 in-the-money put options at the March $57.5 strike for an average premium of $3.76 apiece. Open interest at that strike of 5,169 lots suggests this transaction…
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Put Volume Explodes on iShares MSCI Hong Kong Index ETF
by Andrew Wilkinson - December 2nd, 2009 4:38 pm
Today’s tickers: EWH, HPQ, M, GLD, LCC, KRE, BBY, WAG & DYAX
EWH – iShares MSCI Hong Kong Index Fund – The EWH popped onto our ‘most active by options volume’ market scanner today after one investor traded 70,000 put options on the fund. Shares of the ETF are up 0.25% this afternoon to stand at $16.22. It appears the trader shed 35,000 puts at the January 14 strike for 10 cents apiece in order to partially offset the cost of purchasing 35,000 puts at the June 14 strike for 65 cents each. The net cost of the protective play amounts to 55 cents per contract. The nearer-term short put position in the January contract implies the investor does not expect shares to dip below $14.00 by expiration in less than two months. The investors stands ready to have a whopping 3,500,000 shares of the underlying put to him at $14.00 apiece in the event that the put options do land in-the-money. The long put position in the June 2010 contract suggests the trader is already long the stock. He is most likely extending downside protection on the underlying position for the next seven months before expiration. Shares of the EWH would need to fall 17% from the current price in order for downside protection to kick in beneath the breakeven point at $13.45. We note that shares of the fund have traded above $14.00 since July 15, 2009.
HPQ – Hewlett-Packard Co. – Medium-term bullish trading graced the global technology company’s February 2010 contract despite a 1% decline in HPQ shares this afternoon to $49.06. A risk reversal by one option player suggests shares could increase significantly by expiration in February. The trader sold 12,000 puts at the February 40 strike for an average premium of 27 cents apiece, and bought the same number of calls at the higher February 60 strike for 8 pennies each. The transaction yields a net credit of 19 cents per contract. The investor retains the full credit as long as HPQ’s shares remain above $40.00 through expiration day. Additional profits accumulate if the stock surges 22% higher than the current price to surpass the $60-level. The long call position probably serves more as a stop loss, or insurance policy, on the trade in the unlikely event that shares do jump more than 22% in the next three months. The reversal was more likely…
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China Fund Sees Brisk Two-Way Action
by Phil - June 17th, 2009 4:36 pm
Today’s tickers: FXI, KRE, WFC, FDX, JWN, HUM, ALL & MSFT
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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